Monday, August 25, 2014

TIM WORSTALL AND PAUL WALKER ON ECONOMISTS AS NICER PEOPLE , COOPERATORS, AND BARGAINERS

demonstrates once again why he is among the very best of consistent authors around today in journalism on Adam Smith’s moral philosophy and economics. He understands Adam Smith almost perfectly.

Here is an extract from today’s (Tim’s and Paul’s) offerings: you can read the rest by following Tim’s link above and Paul’s link below: Paul Walker’s “Anti-Dismal” Blog HERE(another excellent daily read which you can bookmark too):

[TW]: “Economists are morally superior beings, scientifically proven that is” and “A lovely paper discovered by Paul Walker over in the land where Kiwis live standing on their heads:

[PW]: Does an economics education affect an individual’s behavior? It is unclear whether differences in behavior are due to the education or whether those who choose to study economics are different. This issue is addressed using experimental evidence from the Trust Game where trusting and reciprocating behaviors can be measured. … Thus, economists play well with others and these social preferences are not taught in the classroom.’

[TW]: “However, this does pose a problem for us as we try to explain it to others. For we’re, in some manner, captivated by those very examples of playing nicely together than the market offers us. We can see how competition is the method by which we decide who to cooperate with and that the vast majority of economic activity isn’t in fact competition at all, it’s cooperation. The seemingly vast and impersonal market itself is simply a description of how we all, the many billions of us, choose to cooperate to our mutual advantage … our task is to get across the points about such cooperation to those who simply do not have those same basic beliefs about human behaviour that we do. No wonder it sometimes comes out as a dialogue of the deaf: we don’t get what they don’t believe at root, that humans are naturally cooperative beings and markets are the way that we do this.”

Comment

The paradox that human co-operation is manifested best in market behaviours is the great divide between those favouring markets where possible, the state where necessary and those, ideologically, favouring only markets and its ideological opposite, those favouring only the state.

Why? For two reasons. First, because states without open markets, as per socialist ventures, the latest being Venezuala, and earlier totalitarian, experiments with total communist states (Soviet Union, Mao’s China, North Korea), were and are avoidable disasters, and second, because markets without states are hard-libertarian/anarcho fantasies.

Adam Smith, writing long before socialism and anarcho-libertarian fantasies were postulated as possible, viable alternatives to each other. He never used the words ‘laissez-fare’, yet his epigones today miss-apply those two words to his name. He also cautioned against requiring as a necessary, pre-condition for prosperity by establishing “the exact regimen of perfect liberty and perfect justice”. Smith commented that if true, “there is not in the world a nation wich could ever have prospered” (WN IV.ix.28: 674). Book III of Wealth of Nations is a “violent’ (his word) polemic against the doctrines enshrined in mercantile political economy. Moreover, he demonstrated his suspicions, indeed contempt, for the “merchants and manufacturers” throughout Wealth Of Nations who dominated the emerging 18th-century, market economies, and also his contempt for “crafty” politicians, and state legislators, who managed, often corruptly, the States of Europe.

Smith was even-handed in his pragmatism, not an ideologue. He wrote of the necessity for both markets and the state for modern economies. That is why (as a ‘soft-libertarian’) I prefer to argue for “markets where possible, the state where necessary”.

Markets depend on co-operation for markets to work; states are necessary for justice to prevail. The modern, misguided perception that bargainers are in competition with each other - what one gains the other loses, because it is a zero-sum game - is profoundly wrong. It is also misleading and at odds with Adam Smith’s expressed views on bargaining (WN I.ii.2: 26-7), which an important consideration if you are relying on quoting Smith to support your contrary assertions.

Two absolutely at odds bargainers are not seeking to maximise their utilities (supposing we accept for a moment the modern notions of self-interested, utility maximisation which inevitably means deadlock). Bargainers seek to exchange what they have for what they want, by trading under the auspices of the conditional proposition: “If you give me some of what I want, then I shall give you in exchange some of what you want”.

The terms of their exchange are arrived at through conversation, using persuasion, mutual consideration of each others expressed wants, offers (TMS) and mutual fexibilities in their offers, and movement between different packages. What one party ‘gains’ is not matched by the other’s ‘losses’ because bargainers want different things - the both ‘give to get’.

John Nash was closest among modern economists writing on bargaining in postulating that the agreed deal, in a mathematical sense, was not a plus or minus of their realised ‘gains’ and ‘losses’ (should they achieve a settlement), but the product of their mutual gains from bargaining. Each values what they gain from bargaining, minus their losses, but as they value the exchanged items differently, both settle by exchanging things they value less for what they value more (however ‘value’ is defined by each separately).

2 Comments:

On the subject of negotiation. As you may or may not know I have a day job in the weird metals business.

My opening line in any and every negotiation is "Well, what is it that you actually want?"

If what they want and the terms upon which they want it is anywhere near close to the terms that I wish to provide it upon then I simply say yes.

Annoys the hell out of people but we do all get to the pub earlier as a result. Sure, I often leave something on the table. But I'm perfectly happy to satisfact rather than optmise. And being straightforward about these things does get you that phone call for the second and subsequent orders rather better than fighting for every scrap does.

TimThanks for you experienced observations on your negotiating style.I like it. Obviously it works in your markets.It should work in others too where both parties know what they are about. No tricks, no bluffs, just plain good sense., for both parties.Its not about "winning"; its about doing the business with others.I'm sure you are right.Your public admirer.Gavin